An extremist, not a fanatic

April 01, 2010

Immigrants & government borrowing

If you’re serious about wanting to reduce government borrowing, you should encourage more immigration, at least of a particular type. That’s the message of an article in the latest issue of Fiscal Studies (early version here). Christian Dustmann and colleagues show that migrants from the A8 nations “have made a significant net contribution to the UK fiscal system.” This is because even those of them who are eligible for welfare benefits are much less likely to claim them than are native people. They are also much less likely to live in social housing.Overall, they estimate that between 2005 and 2009, A8 migrants paid around £1.35 of tax for each pound of public spending they receive, whereas natives paid only around 90p.You might object that these positive results are exaggerated, because A8 workers merely displace British-born workers. But this is justnot true. Are more reasonable objection is that not all migrants make as positive a contribution as A8 workers, partly because they have lower employment rates; Bob Rowthorn has estimated that, overall, the fiscal impact of immigration is around zero.Even with this caveat, though, we can say two things. First, the idea that immigrants put “pressure on public services” is pure bull. Of course, some do - but then, anything is true of some people. Taken as a whole, immigrants contribute as much to public services as they take out. Secondly, there’s a large group of migrants who would help us reduce government borrowing. A party that was serious about cutting the deficit would therefore want more of this type of migration. Which poses the question: why, when all main political parties claim to want to reduce the deficit, do they also talk* tough on immigration? It’s because cutting the deficit is not really a top priority at all - and certainly not a higher priority than appealing to the mob. * Yes, I know much of Brown's speech was more positive and sensible about immigration than the BBC's headline.

Immigration like everything else is dependent on the state of the economy.Booming economy & immigration is not an issue, recession and the opposite is true. Please lets not blame all our woes on immigrants who are generally resillient, hard working & enterprising.

Put it another way. If you use additional tax receipts from immigrants in working-class Burnley to fund tax cuts for the middle-classes in Surrey, then you may be fiscally neutral but BNP voters in Burnley may still be worse off.

There is another sense in which immigration puts pressure on public services.

The quality of public services in the current year is driven only in part by the budget in the current year; it's also driven by the accumulated capital from the spending in previous years. The two biggest lumps of that capital are buildings (schools, hospitals) and educated workers (teachers, doctors, nurses, etc).

If the population of a geographical area increases rapidly - whether through a very high birth rate, or through high immigration (regardless of whether those immigrants have crossed an international border to get there), then even if public spending does rise with the increasing tax revenues, the capacity improvements in public services will inevitable lag the investment.

In an oversimplified example, if the population of the catchment area of a hospital doubles, then doubling the budget of the hospital doesn't give it enough capital funds to build lots of new wards, so that puts pressure on the hospital.

Even if it does drive lots of capital investment (as it should), there is still a lag - look at the huge amounts of capital poured into the NHS in the last six or seven years and how long it has taken for the quality and quantity of care to become representative of the funding level.

This isn't an argument against immigration - but there is an argument for controlling immigration when capital budgets are tight.

[Incidentally, this is another argument for replacing PSBR with GGFD; capital spending is depreciated like a normal business instead of being a one-off charge]

The argument in the above article is completely demolished by the point made by Richard Gadsen above, namely that each immigrant necessitates a HUGE investment (and hence ADDITIONAL BORROWING) in roads, school and hospital buildings, railways, etc.

'Immigrants of a certain type make a net fiscal contribution.' No shit, Sherlock (to quote an earlier post). Has anybody ever claimed that no immigrants of any type make a net fiscal contribution?

But it is a non sequitur to state that, 'taken as a whole, immigrants contribute as much to public services as they take out'. It depends on the characteristics of the immigrants, which depends (partly) on the immigration policy pursued. Maybe there is a robust study of the UK immigrant population that looks at this, but you don't link to one. It is quite plausible that educated immigrants from the EU make a positive net fiscal contribution, while poorly educated immigrants from developing countries do not.

Also, I wasn't aware of any mainstream party proposing that we leave the EU/ renege on Treaty commitments relating to freedom of movement between EU states.

Economic immigration does push down pay rates for unskilled and semi-skilled workers and migrants come here with uncheckable qualifications that have to be established on the job - by then they have the job in place of someone with UK qualifications.

Also economic immigrants, particularly non permanent ones, tend to live in conditions that UK workers will not live in. People sleeping many to room and live cheaply in order to save money to enable them to send more money home. This means much lower costs to cover than native workers and a downward pay spiral, particularly in a recession.

This can have significant effect in areas where large numbers of immigrants tend to head for - London, East Anglia.

However, it does need to be said that the immigrants are known for working harder, doing better work and often having a higher level of skill than UK workers.

Lower cost, higher skills and work harder. Any businessman knows which he would recruit.